The Hon’ble Supreme Court of India has dismissed a Special Leave Petition (SLP) filed against the order of High Court of Delhi in case of Oil Industry Development Board.
The SLP was filed against the order where it was held that “in absence of any exempt income, disallowance under Section 14A of the Act of any amount was not permissible”.
The AO disallowed an amount of Rs.1,62,49,000/- u/s 14A by rejecting the contentions raised by the assessee that no expenses have been incurred by the assessee to earn the exempt income during the year under assessment
GROUNDS RAISED BEFORE ITAT:
That Ld. CIT (A) has erred in upholding disallowance of Rs.1,62,49,000/- u/s See 14A as provisions of Section 14A have no application in the instant case since the appellant had no exempted income in the relevant assessment year under consideration.
When the assessee has not earned any exempt income during the year under assessment, no disallowance is permissible u/s 14A of the Act.
ITAT set aside the order of AO following the decision of High Court of Delhi in case of Cheminvest Ltd. vs. CIT – (2015) 378 ITR 33.
HIGH COURT’s RULING:
High Court dismissed the appeal of revenue and followed its ruling in case of Cheminvest Ltd. vs. CIT.
In the said case, the court held that “the expression ‘does not form part of the total income’ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income.
In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year”.
The dismissal of SLP by Hon’ble Supreme Court has led to conclusions that the provisions of Section 14A is applicable only in cases where the exempt income has been derived by the assesses during the Assessment Year under consideration.
This act of Supreme Court may be considered as the attainment of finality to the provisions of law and may end up the controversies and litigation involved regarding the applicability of Section 14A. However, there is still the requirement of a clearer verdict by the Apex Court.